Investment Bankers to the Middle Market
header

Benefits of Employee Stock Ownership Plans (ESOPs)

ESOP vs. Traditional Sale

  • Certainty and Confidentiality – If a feasibility analysis shows than an ESOP will work, there is certainty to closing and as it is an internal process, there are few or no disruptive rumors in the marketplace
  • Rapid Transaction Execution – ESOP transactions close much more quickly, efficiently and discretely than traditional sale..
  • Full Value

Benefits to Employees

Enhanced Financial Security

  • Significant improvement in retirement benefits
  • Employees become beneficiaries of the Trust with no personal cash outlay
  • Employees’ beneficial interests ultimately repurchased by the Company or Trust

Enhanced Job Security

  • Incidence of layoffs and terminations significantly lower during Great Recession
  • Avoidance of redundancies in a sale to a competitor

Other Benefits to Employees

  • Pride of opportunity to participate in the ownership of their company
  • Company funded benefit with no contribution from the employees

Benefits to Management

  • ESOP transactions usually entail additional equity incentives for management team through a separate non-qualified plan

Benefits to the Company

Income Tax Benefits

  • Elimination of most or all income taxes prospectively
  • Potential refund of income taxes already paid

Employee Related Benefits

  • Potential outperformance in terms of sale/employee, net profit margin and ROA
  • Enhanced ability to attract and retain employees
  • Flexibility to include or exclude union members

Other Financial and Strategic Benefits

  • Ability to repay capital expenditure financing on pre-tax basis
  • Potential special benefits for certain federal contractors
  • Strategic flexibility – all long term strategic options preserved
  • A willing buyer at full value of the business
  • Objective criteria can enable a sale during irregular market conditions
  • Structure is a stock sale (not an asset sale)
  • Capital gains deferral
  • Certain shareholders including partnerships and individuals may defer capital gains
  • Directors and officers may retain their ownership and not recognize a taxable event
  • Upside retention – potential for continuing participation in the companies growth